Unlisted Multinational Companies in Ghana: A Reason for the Depreciation of the Ghanaian Cedi
Introduction
The depreciation of the Ghanaian Cedi has been a persistent concern for both the government and the people of Ghana. Despite various interventions and economic policies aimed at stabilizing the currency, the Cedi continues to lose its value. While multiple factors contribute to this issue, one critical aspect that often goes overlooked is the presence of unlisted multinational companies operating in Ghana.
These multinational corporations, despite their significant economic activities within the country, are not listed on the Ghana Stock Exchange (GSE). This omission has far-reaching consequences, including a negative impact on the Cedi’s exchange rate. In this article, we will explore some reasons behind the depreciation of the Ghanaian Cedi and why encouraging unlisted multinational companies to list on the GSE is a crucial step towards addressing this issue.
The Depreciation of the Ghanaian Cedi
The depreciation of a national currency can have severe consequences for an economy. It leads to increased import costs, inflationary pressures, and erodes the purchasing power of citizens. In Ghana, the Cedi’s persistent depreciation has been a significant concern, and several factors contribute to this phenomenon.
One of the primary factors is the country’s current account deficit. Ghana imports more goods and services than it exports, leading to a trade imbalance. To cover this deficit, the nation relies heavily on foreign inflows, including foreign direct investment (FDI) and loans. These inflows are often denominated in foreign currencies, which places pressure on the Cedi’s exchange rate.
Additionally, Ghana’s dependence on exports of commodities, particularly oil and gold, makes the Cedi vulnerable to fluctuations in global commodity prices. When these prices fall, Ghana’s export revenues decrease, putting further pressure on the Cedi.
The Role of Unlisted Multinational Companies
While these macroeconomic factors undoubtedly play a significant role in Cedi depreciation, unlisted multinational companies also contribute to the problem. Ghana is home to various multinational corporations, spanning industries such as telecommunications, manufacturing, and finance. These companies often repatriate their profits, dividends, and royalties in foreign currencies.
Herein lies the issue: when these multinational corporations are not listed on the GSE, the dividends and profits they generate do not circulate within the local economy. Instead, they are sent abroad, resulting in capital flight. This continuous outflow of foreign currency puts additional downward pressure on the Cedi, exacerbating its depreciation.
The Solution: Encouraging Listing on the Ghana Stock Exchange
One effective way to address this issue is to encourage unlisted multinational companies operating in Ghana to list on the GSE. There are several compelling reasons why this move makes sense:
Number of companies listed in the stock exchange in Africa in 2020, by country
Source: statista.com
Retaining Capital Locally: When multinational companies list on the GSE, they become subject to local regulations, including dividend payment requirements. This means that a portion of their profits and dividends will end up in the hands of local investors, rather than being sent abroad. This not only benefits local shareholders but also helps stabilize the Cedi by reducing capital flight.
Increased Transparency: Listing on a stock exchange requires companies to adhere to strict reporting and transparency standards. This level of transparency can help reduce illicit financial flows and tax evasion, contributing to a healthier economic environment.
Access to Local Capital: By listing on the GSE, multinational companies gain access to a pool of local investors and potential capital. This can be beneficial for financing expansion plans, infrastructure development, and other projects within Ghana.
Strengthening the Local Stock Market: The presence of multinational corporations on the GSE can enhance its reputation and attractiveness to investors, both local and foreign. This can lead to increased liquidity and activity in the local stock market, making it a more robust and dynamic platform.
The Role of Government Policy
Government policy plays a pivotal role in addressing the challenge posed by unlisted multinational companies. Here are several ways in which the government can encourage and facilitate the listing of these corporations on the Ghana Stock Exchange:
Incentives for Listing: The government can introduce incentives such as tax breaks, reduced listing fees, or preferential treatment in government contracts for multinational companies that choose to list on the GSE. These incentives can make listing a more attractive option.
Regulatory Framework: The government can establish a clear and supportive regulatory framework that simplifies the listing process and ensures compliance with international standards. A streamlined process can encourage companies to go public.
Transparency and Reporting Requirements: Implementing stringent transparency and reporting requirements for all multinational corporations operating in Ghana can encourage them to consider listing as it aligns with international best practices.
Local Participation: The government can mandate a minimum percentage of local ownership for multinational corporations operating in strategic sectors. This requirement can incentivize companies to list on the GSE to comply with the ownership regulations.
Public Awareness Campaigns: Government initiatives to educate multinational corporations on the benefits of listing on the GSE and the positive impact on the local economy can be instrumental.
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Conclusion
The depreciation of the Ghanaian Cedi is a complex issue with multiple contributing factors. While macroeconomic challenges are significant, the presence of unlisted multinational companies exacerbates the problem by facilitating capital flight. Encouraging these corporations to list on the Ghana Stock Exchange is a practical and effective solution.
By doing so, Ghana can retain more of the foreign currency earnings generated by these companies, strengthen the local stock market, and improve transparency and accountability in the business environment. Government policy can play a pivotal role in creating a conducive environment for listing. Ultimately, listing on the GSE is a win-win scenario, benefiting both multinational corporations and the Ghanaian economy as a whole. It is time to take this step towards stabilizing the Cedi and fostering economic growth in Ghana.
